How to invest in real estate that makes a difference
One way to diversify your portfolio is through real estate. Individuals can buy real estate investment trusts – or REITs – much the way they buy mutual funds. But such properties can be tricky for ethical investors. Environmentalists don't want to back strip malls. Advocates for the poor might shun developers who gentrify neighborhoods. But here and there, developers are trying to create real estate that reflects certain core beliefs. The Monitor's Laurent Belsie spoke with Bill Hankowsky, CEO of Liberty Property Trust, a Philadelphia-based REIT that emphasizes environmentally sensitive building design. Here are excerpts from their conversation:
Real estate historically wasn't something the average investor could get access to. And that's why the government created real estate investment trusts, which are a vehicle whereby we own assets – in the case of Liberty, they're warehouses and office buildings across America – and we are publicly traded. So you can buy the stock.... REITs are very much a dividend stock and they have appreciation to the degree that we can grow earnings in the company. So they're both an income and a growth possibility for investors that didn't exist significantly 10 to 15 years ago. Total market cap is [now] over $300 billion.
It couldn't take hold until ... the sector got itself mature. And the sector now has gone through a real estate cycle. It's viewed as stable.
What makes a building green is a variety of factors: using a site that had been used once before versus going out and ripping up farmland, being next to mass transit ... using recycled materials in terms of the carpets or tiles, [and] whatever you do on the site – recycling it. The runoff from the rain – you would capture that water, often called gray water, and recirculate it to irrigate the landscaping.
You're going to irrigate the landscape, anyway; you're going to put in urinals, anyway, in the bathrooms. So making them waterless, having the [faucet] fixture where you [pull out] your hands and it shuts off – these are all little things that actually don't cost very much more: 1 or 2 percent more. And the savings are fairly dramatic. You can cut energy costs by 30 to 40 percent. You can cut water consumption by 30 to 40 percent. If you're green-conscious going in, you can really have a fairly minimal impact on costs.
We started thinking about this a couple of years ago. At the time, I would say a number of our customers might have been skeptical. "What is this going to cost me? What am I getting for it?" Today, it's a much easier conversation because they are [saying,] "I'm going to lower my operating costs because I'm going to use less energy, less water." That's apparent. We even have customers today who say: "Build us one."
Anybody could say: "I want to be green." There's a US Green Building Council, which is a nonprofit organization, which has put out LEED (Leadership in Energy and Environmental Design) standards. You apply to them, and they will certify that your building is green. You must independently hire someone to audit that you did this [or that].... We have 14 buildings that have either been certified or are in the process. And we have about seven more that are about ready to get started. We think we've done more than anybody else, but it's a little hard to keep track.
About 735 buildings. So we have a long way to go to having a green portfolio. But in order to address that ... if space goes vacant and we have a new tenant come in and we have to put in new carpet and new tile, we use the same standard as we would use if we're trying to make the building green. We're trying to use recycled materials, use monitors for the lighting to minimize energy consumption. And we're not doing that to get it certified, but just because it will lower the operating costs. So we're slowly converting over the portfolio.
Our founder, Bill Rouse, was a very ethical man and gave us a culture and a set of values. Part of that was Bill's belief [in] building extraordinary workplaces and environments. So we think about the kinds of buildings we build, where we build them, the communities they're in, building them in park settings where we have sculpture in our yard and lots of landscaping. We think about all that. So wanting to be cutting-edge in development is in our DNA. [Then] people started thinking about green buildings.... Not only was it a logic out of our culture, but we also felt it was a value proposition. We would have buildings that would have more value over time on a life-cycle basis and would absolutely have lower operating costs for our tenants.
If somebody wants to own a piece of Liberty, or a piece of a company that owns hotels or whatever, you can buy these stocks. They're publicly traded. We're on the New York Stock Exchange.... I tell everybody: "You should have REIT stocks as part of a well-rounded portfolio, particularly from a retirement perspective." They give you cash flow, they give you some appreciation. They have low volatility. These are real assets [and] different from a tech company, where somebody could develop new software, and you could be out of business in a day. These buildings have real value and sit in places that are irreplaceable.
No, there are other companies doing it. Some are private developers, so unfortunately the investor we're talking about couldn't access them. [For example,] the Hines organization, which is a very well-respected developer, is doing a building in Manhattan that way. Some other REITs have done some. But I think I could say without blushing that we're doing more of it than anybody else in the publicly traded world.
• Watch the conversation online at csmonitor.com/ethicalinvesting.